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EU Carbon Plunges After German Permit Auction Fails Second Time

Feb. 22 (Bloomberg) -- European Union carbon permits dropped as much as 9.4 percent after a sale by Germany failed for a second time this year because bids didn’t reach an unspecified reference price.

EU allowances for December fell as much as 50 cents to 4.80 euros ($6.34) a metric ton on the ICE Futures Europe exchange in London and were at 5.08 euros at 11:10 a.m. The contracts closed at a one-month high of 5.30 euros yesterday.

The 4 million tons from the canceled sale will be “evenly distributed” over the next four weekly auctions, Leipzig, Germany-based European Energy Exchange AG, which handled the auction, said by e-mail.

EU carbon allowances for this year dropped to a record 2.81 euros a ton last month as the region’s slowing economy and a surplus of the certificates damped demand. The European Commission has proposed holding back 900 million tons of new permits over the next three years as one way to support prices.

The EU’s emissions trading system, the world’s biggest greenhouse-gas program by traded volume, may be oversupplied by 1.5 billion tons by the end of this year, Jos Delbeke, the European Commission’s director general for climate, said Feb. 6.

A sale of German permits on Jan. 18 also failed after bids didn’t reach the reserve price.

The EU introduced its carbon system in 2005 to help meet emission-reduction targets under the 1997 Kyoto Protocol. The program auctions or allocates for free allowances to factories and utilities, which must surrender enough permits to cover their discharges of carbon dioxide or face fines.

To contact the reporters on this story: Mathew Carr in London at m.carr@bloomberg.net; Alessandro Vitelli in London at avitelli1@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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